Obama Citizenship

Chrysler Non-TARP Creditors File Preliminary Objection; More Threat Corroboration

By Phil

As allegations that the White House singularly threatened certain Chrysler creditors into taking a less than their current contractual deal regarding their investments in the company, HotAir.com has been reporting that certain non-TARP creditors are taking the situation to court:

If the Obama administration expected the senior creditors of Chrysler to fold their tents under political pressure, they may have gotten a rude shock today.  Thomas Lauria, who accused the White House of threatening the creditors withn humiliation at the hands of the White House press corps, has filed a motion to halt the administration?s machinations on behalf of the UAW in the Chrysler bankruptcy.  Lauria and his allies claim that the Obama administration has violated the Constitution in their bid to devalue the senior creditors? holdings on behalf of junior creditors, and have some precedent to support the allegation.

The heart of the argument starts on page 8 (via HA commenter Outlander):

III. The Taking of Collateral through a Direct or Indirect Use of TARP Authority is Unconstitutional.

13. The Treasury Department relies on TARP as the purported authority to justify the disparate treatment under the 363 Sale, even though TARP was enacted after the Senior Lenders? liens on the Debtors? property were already in place. The Supreme Court long ago recognized, however, that a secured creditor?s interest in specific property is protected in bankruptcy under the Fifth Amendment. Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 594 (1935). That case involved a Depression-era statute that was intended to help bankrupt farmers avoid losing their land in mortgage foreclosure. The statute in Radford provided that the bankrupt debtor could achieve a release of the security interests either (i) with the lender?s consent, purchasing the property at its then appraised value by making deferred payments for two to six years at statutorily-set interest rates; or (ii) by seeking from the bankruptcy court a stay of the proceedings for up to five years during which time the debtor could use the property by paying a rent set by the court, which payments would be for the benefit of all creditors, with a purchase option at the end of that period. Id. at 856-57.

14. Justice Brandeis noted that the ?essence of a mortgage? is the right of the secured party ?to insist upon full payment before giving up his security [i.e., the property pledged].? Radford, 295 U.S. at 580. In invalidating the statute, the Court stated that ?[t]he bankruptcy power . . . is subject to the Fifth Amendment,? and that the pernicious aspect of this law was its ?taking of substantive rights in specific property acquired by the bank prior to the act.? Id. at 589-90 (emphasis added). Thus, Congress could not pass a law that could be used to deny to secured creditors their rights to realize upon the specific property pledged to them or ?the right to control meanwhile the property during the period of default.? Id. at 594. That is precisely what the Treasury Department would have Chrysler do here, with respect to the Chrysler Non-TARP Lenders? property rights that were acquired prior to the enactment of TARP.

15. Relying on purported authority provided by TARP, the Treasury Department is demanding that Chrysler?s assets be stripped away from the coverage of the Senior Lenders? liens ? thereby impairing the rights of the Senior Lenders to realize upon those assets ? so that those assets may be put in New Chrysler and used to the benefit of unsecured creditors in this proceeding, who will then be paid much more than the Senior Lenders. But, even assuming that TARP provides the Treasury Department with authority to provide funding to the Debtors and impose the transfer of collateral away from the Senior Lenders, TARP was enacted long after the Senior Lenders contracted with the Debtors and received senior liens on the Debtors? property. Radford specifically disallowed the use of a law to retroactively alter existing liens on property.

16. Here, the proposed sale of the Debtors? assets will leave the Senior Lenders with a diluted pool of assets and no further interests in the operating assets covered by their specific liens. The Constitution forbids this application of a law retroactively to undercut the Senior Lenders? pre-existing property rights in favor or inferior creditors.

17. Finally, that the Treasury Department would take these unconstitutional actions to help the United States address difficult economic times is not an answer. Indeed, the same justification was expressly rejected in Radford, where Justice Brandeis noted that a statute which violated secured creditors? rights, but which was passed for sound public purposes relating to the Great Depression, could not be saved because ?the Fifth Amendment commands that, however great the nation?s need, private property shall not be thus taken even for a wholly public use without just compensation.? Id. at 602.

18. What is really striking here is that what is being proposed by the Sale Motion would strip the Collateral away and allow it to be put to use as new capital in New Chrysler for the benefit of existing and other creditors ? even though the Chrysler Non-TARP Lenders have been given no opportunity to realize upon that Collateral to the point of full repayment ahead of at least $14 billion of selectively identified unsecured creditors.

One might think that a Constitutional scholar like Barack Obama would have already known that, but either this precedent escaped him or he doesn?t care about it at all.  Brandeis acted to uphold contract law, especially in the face of a government interest in paying off politically-connected unsecured creditors ahead of the senior creditors.  There is no other reason for Brandeis to make that decision, as only government could insert itself into the contractual relationship during a bankruptcy proceeding ? just as Obama has done with Chrysler.

Lauria?s argument seems very compelling here, especially given Brandeis? rather clear assertion that bankruptcy proceedings have to fall within the 5th Amendment ? and that government can?t implement a taking to satisfy its own arbitrary aims by ignoring the relationship of the creditors to the default.  We?ll see whether the court rebukes Obama.

What Ed Morrissey comments in the last couple of paragraphs is absolutely critical in the goings-on of the Chrysler/GM/financial industry takeover.

Also consider the following excerpt from FloppingAces (there are plenty more links in the posting at the link):

Just two days ago, No Quarter, a handful of blogs and a thimbleful of major media caught on to the Chrysler holdout firms? attorney, Tom Lauria, and his accusations that Obama?s auto czar, Steven Rattner, threated to destroy P-W?s reputation if they continued to oppose the government orchestrated sell out of Chrysler to Fiat SpA.

Perella-Weinberg has a stake in Chrysler via their Xerion [Capital] Fund. Chrysler, itself, is currently owned by Cerberus Capital Management LP. Try to keep all these names straight? these players are going to continue to reappear, along with some others you may not know about.

Per Law Shucks, and via Andrew Sorkin at the NYTs Dealbook, Lauria added more detail to that threat in a follow up interview with Jake Tapper.

In a follow-up interview with ABC News?s Jake Tapper, [Lauria] identified Mr. Rattner, the head of the auto task force, as having told a Perella Weinberg official that the White House ?would embarrass the firm.?

It?s no surprise that the WH denied the event ever took place. And yesterday Perella-Weinberg issued their carefully parsed statement as well.

 

Suggestions have been made that the Perella Weinberg Partners Xerion Fund changed its stance on the Chrysler restructuring due to pressure from White House officials. This is incorrect. The decision to accept and support the proposed deal was made by the Xerion Fund after reflecting carefully on the statement of the President when announcing Chrysler?s bankruptcy filing. In considering the President?s words and exercising our best investment judgment, we concluded that the risks of potentially severe capital loss that could arise from fighting this in bankruptcy court far outweighed any realistic potential upside.

We have a very specific mandate from our investors, and that is to carefully weigh investment risks and rewards. It is not our investment mandate to pursue political or risky legal campaigns with our investors? money. This was our assessment of investment risk and reward, nothing else.

While we did and still do believe that the lenders would be justified in pressing their objections under conventional bankruptcy law principles, we believe a settlement would now be in the best interests of all parties in the context of avoiding a drawn out contested bankruptcy litigation proceeding, and we encourage our colleagues in the loan syndicate to pursue this immediately.

Note very carefully, Perella-Weinberg spokespersons have not denied the charges of White House strong arming. Instead, in no uncertain terms, P-W has chosen to use the promise of heavy litigation costs ?. with a questionable outcome? as their reason for a change of heart. Surely they would have known this before signing on to the lawsuit. Could they be this under-informed at the onset?

History? plus their choice of legal representation, belies this possibility. Lauria has been in this same spot for his clientele before with a previous decision in Adelphia Communications.

Here the bankruptcy judge refused requests by Lauria, representing first lien holders, to appoint a trustee to oversee disputes, and to disqualify a chief Adelphia bankruptcy counsel. The bench considered this a ?nuclear war button? threatening obliteration of a crucial $17.6 billion deal, selling Adelphia?s assets to cable rivals, Time Warner and Comcast.

Key to the judge?s decision was that a failed sale due to delays could incur higher costs in penalties to Adelphi, and that the assets could be sold prior to the creditor challenges to the planned reorganization by using Section 363 of the US Bankruptcy Code under Chapter 11.

In the same vein, Obama?s orchestrating a forced asset sale to what will be a government and union owned company, [55% to UAW, 10% to government/secured lenders] known as Fiat SpA (or whatever new name they give to this new US entity), prior to Lauria?s Chrysler claims being heard.

But there?s way too much crony?ism going on with Rattner as Obama?s auto czar. As the ever astute Missy pointed out at the end of March, Rattner?s conflicts of interest in oversight are tenacled.

Rattner is co-founder and senior executive of the Quadrangle Group, under investigation for it?s alleged roll in a kickback scheme in concert with Henry ?Hank? Morris, and former New York deputy comptroller, David Loglisci, and involving the New York State Common Retirement Fund. Both Morris and Loglisci were arrested in March of this year, charged with 123-count state criminal indictment that included money-laundering, enterprise-corruption and bribery charges.

So far, the most indepth round up of the doin?s between Rattner?s Quadrangle, and Rattner himself with documented meetings with Morris, and Loglisci comes from The New Republic?s Marty Peretz.

I?ll let you read thru the whole unsavory story itself, but it appears that Mr. Loglisci co-produced one loser of a flick called ?Chooch? which lost about $700K after a brief run in three theatres. Rattner?s Quadrangle Group decided to do a quid pro quo, and avoided crucial reporting requirements by using a subsidiary to buy the DVD rights to this movie for $88K. Shortly thereafter, magically, Loglisci? in charge of managing some of the NY pension funds? slide $100K from the fund to Rattners Quadrangle Group for investment purposes.

AKA? pay to play. [emphases original]

But wait, there’s more (h/t LogisticsMonster), and it has to do with forboding allegations regarding Smith & Wesson, Cerebrus and Remington (and, yes, there are plenty more links in the post):

Update: I didn’t originally copy LogisticsMonster’s disclaimer at the top of their posting, but since so many of the opposition are freaking out that they started out their posting with a rumor from JumpingInPools, a site known for creating satirical pieces, I’ll post the disclaimer now (which expresses my sentiments exactly):

UPDATE: 5/5/09

This post is creating quite a stir among patriots and obots alike, so if the site is slow - deal.   I still have not been able to reach anyone at S&W to confirm or deny any of what was posted on JumpingInPools as ?satire?.  I wanted to be thorough, (and my readers know I am that), and check and make sure it was just satire, BUT THE WHOLE POINT OF THE POST was NOT Smith & Wesson, BUT Cerberus and Remington and what would happen if the government takes control of Cerberus or their holdings, (including gun manufacturers), because Cerberus received TARP MONEY?just like the banks?is any of this ringing anybody?s bell?

?end update?go about your business?.

And now, on with the posting:

There is another rumor floating around the internet right now and I have calls and emails into Smith & Wesson to get the real story.  I was going to wait until I was actually able to confirm this story one way or another, but ended up going down a completely different path while investigating, and felt that the information revealed required immediate dispersal to the roundtable.  I will let you know as soon as I get more information about the rumor.  In the meantime, some of you may already know about the second part of this post; most will not.

Here is the rumor?

From Jumping In Pools:

Gov?t Attempting to Seize Smith & Wesson

Marie Llosander
4/29/2009

Seemingly in line with other corporate seizures, the United States government appears to be attempting to gain a majority stake in prominent firearms company Smith & Wesson.

Smith & Wesson, one of the oldest weapons company in the United States, is currently on sound economic footing. However, a clause in the 2009 Stimulus Bill calls for the federal government to seize industries and companies that are essential to the economy or ?government function.?

The Treasury Department contacted the company in March 2009, asking to buy shares at $10 above market price. However, this offer was sharply rebuffed. Similar offers have been made to Remington.

After this rejection, the Treasury Department has declared that it will use mechanisms in the Stimulus Bill in order to override the corporate decision. Smith & Wesson?s board of executives have also been informed that this decision by the Treasury Department could not be appealed to any superior court.

Which brings us to the very interesting part of this story while I wait for confirmation from Smith & Wesson.

?Similar offers have been made to Remington.?

That statement is very interesting since Cerberus owns Remington and bought the gun manufacturer on April 5, 2007. …

I also ran across this interesting tidbit from the New York Observer:

Cerberus Capital Management: You Cannot Be Serious

For reasons that defy both logic and recent history, Cerberus Capital Management, a New York?based private equity firm, has purchased a controlling interest in Chrysler for nothing, while taking the German automaker Daimler off the hook for almost $20 billion in pensions and health-care benefits. The sale comes about nine years after Daimler bought Chrysler for $36 billion in hopes of restoring the company to its former glory. (The biggest joke of all is that Kirk Kerkorian, Chrysler?s then-biggest shareholder, thought Chrysler had made a bad deal, and went on to sue DaimlerChrysler. Now he?s taking a big stake in General Motors?maybe a good short sale.)

This latest sale?if you can call it that?is being hailed as a milestone in the storied history of American automaking. Chrysler, once an icon of mid-century American economic power, will become the first privately owned U.S. car company. The question for Chrysler?s new owners is simple: Why do they think they can rescue the company when Daimler, one of the world?s smartest automakers, clearly could not?

This is not just a question about Chrysler?s future; it?s a question about the entire U.S. auto industry. Chrysler was in bad shape when Daimler bought it, and has only gone south since. Meanwhile, it seems only a matter of time before the Ford Motor Company goes broke, thanks in part to William Clay Ford Jr., the great-grandson of Henry Ford, and his family counterparts, who have managed to fritter away their ancestor?s legacy.

If you are still interested in a thorough bio of Steve Feinberg and Cerberus after all that, go here.  I found it fascinating and more names that we have heard over and over before came up.

So I guess the question would be, ?what does Cerberus know that we don?t know when it comes to Chrysler and Remington??  Hopefully, I will have some sort of confirmation on the Smith and Wesson rumor soon.  Please keep in mind that if Texas passes their firearms freedom act, there will be ground-floor investment opportunities for the brand new gun companies springing up in Montana, Texas, and any other state that wants to shelter them from the feds and big business.

Update: AceOfSpades chimes in on the following corroborating evidence:

Remember, the White House has categorically denied this. As Clinton denied Lewinsky. …

Anyway:

Although the focus has so been on allegations that the White House threatened Perella Weinberg, sources familiar with the matter say that other firms felt they were threatened as well. None of the sources would agree to speak except on the condition of anonymity, citing fear of political repercussions.The sources, who represent creditors to Chrysler, say they were taken aback by the hardball tactics that the Obama administration employed to cajole them into acquiescing to plans to restructure Chrysler. One person described the administration as the most shocking “end justifies the means” group they have ever encountered. Another characterized Obama was “the most dangerous smooth talker on the planet- and I knew Kissinger.” Both were voters for Obama in the last election.

One participant in negotiations said that the administration’s tactic was to present what one described as a “madman theory of the presidency” in which the President is someone to be feared because he was willing to do anything to get his way. The person said this threat was taken very seriously by his firm.

The White House has denied the allegation that it threatened Perella Weinberg.

 

They both voted for Obama. Proof again of the truism that the government big enough to give you everything you want is also big enough to take everything away.

Thanks to Anti-Harkonen Freedom Fighter Geoff.

More Intimidation: Perella Weinberg feels the heat, and asks Tom Lauria to start “no commenting” everything.

Note his comment at 3:00 — “I’m sure if people keep pressing, the truth will come out.”

Ah, there’s the rub. Who in the press corps will press? A few here and there. But by and large the press will allow this to slide. After all, they have to conserve their editorial resources for the time when Obama sics them on a creditor who won’t play ball.

Thanks to WTF Capital Investments.

Obama = Nixon: ”The madman theory” was invented either by Kissinger or Nixon or both, and used by Nixon. Nixon’s idea was to scare the North Vietnamese into a truce by having the word put out that Nixon was crazy, he might just use the bomb, everyone at the State Department is worried sick about his stability, etc.

Good to see Bammy has found a good use for it.

Be safe and be vigilant. As I continually say:

“Never trust the government more than the government trusts you.”

-Phil

Full post as published by The Right Side of Life on May 06, 2009 (boomark / email).